My goal is to save more for non-retirement items but permit some potential investment growth. I am considering using the after-tax (not Roth) account in my 401(k) to do so. I was thinking that if after some period of time, maybe a year?, and I don't need the funds, I could then utilize the mega backdoor Roth at that time.

Here are some facts that may be relevant:

- My plan does permit withdrawals of after-tax contributions at any age, so I would be able to access the money.
- I am not currently maxing out tax-advantaged 401(k) savings. I *could* do this but I am more concerned about non-retirement savings at this time.
- I'm contributing 8% of pay and I get 4.5% match.
- I am maxing out HSA contributions.
- I currently have a Roth IRA with a modest amount and I do not have a traditional IRA.
- I am not able to assign the after-tax contributions to a specific investment (e.g., a money market fund to preserve principal).

So am I over-engineering this? Should I take another approach?

I like the flexibility this approach hypothetically permits but acknowledge (a) the investment risk and (b) the administrative burdens of the mega backdoor.

Last edited by clipson on Tue Sep 11, 2018 8:27 pm, edited 1 time in total.

I don't see why you would do after-tax 401k contributions without utilizing backdoor Roth. You refer to possibly needing the funds, but if that is the case, why would you want the funds tied up in your 401k? Are you over age 59.5?

I don't see why you would do after-tax 401k contributions without utilizing backdoor Roth. You refer to possibly needing the funds, but if that is the case, why would you want the funds tied up in your 401k? Are you over age 59.5?

Designating them as non-Roth after-tax circumvents the age 59.5 requirement. They can be withdrawn at any age.

Would I not be subject to the 5-year waiting period to withdraw the principal from the Roth IRA if I utilized the backdoor Roth?

I don't see why you would do after-tax 401k contributions without utilizing backdoor Roth. You refer to possibly needing the funds, but if that is the case, why would you want the funds tied up in your 401k? Are you over age 59.5?

Designating them as non-Roth after-tax circumvents the age 59.5 requirement. They can be withdrawn at any age.

Would I not be subject to the 5-year waiting period to withdraw the principal from the Roth IRA if I utilized the backdoor Roth?

No. If you are eligible to make a direct contribution to the Roth, do it. You can withdraw the contribution with no penalty at anytime. If your income is to high, then use the back door approach. You make the non deductible contribution then you immediately convert. The only part of the conversion subject to the 5 year rule is the part that was taxable. However, if you make a non deductible contribution and immediately convert, none of the conversion is taxable. Therefore, it is all available for immediate withdrawal with no taxes or penalties due.

I would roll it into the Roth IRA. There are ordering rules for withdrawals, but if you have little or no pretax go in it shouldn't matter much if you have to take it out later. As noted, your direct contributions, if any, come out first.

This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

- I am not able to assign the after-tax contributions to a specific investment (e.g., a money market fund to preserve principal).

Can you designate where 100% of your future contributions are invested? Say for example a Stable Value fund? If so, you could load up on the after tax contributions while simultaneously designating 100% to a stable value fund. This would place your after tax contributions into a money market type fund. Furthermore, if your plan allows, you could then do an in plan Roth rollover (IRR) of your after-tax sub account, which should preserve your allocation into the Roth. Not sure if it is worth it to you to do all of this, but sometimes you can get the desired affect while still playing within the Plan rules. Just be careful to contribute what is needed to get the match. Best of luck.

- I am not able to assign the after-tax contributions to a specific investment (e.g., a money market fund to preserve principal).

Can you designate where 100% of your future contributions are invested? Say for example a Stable Value fund? If so, you could load up on the after tax contributions while simultaneously designating 100% to a stable value fund. This would place your after tax contributions into a money market type fund. Furthermore, if your plan allows, you could then do an in plan Roth rollover (IRR) of your after-tax sub account, which should preserve your allocation into the Roth. Not sure if it is worth it to you to do all of this, but sometimes you can get the desired affect while still playing within the Plan rules. Just be careful to contribute what is needed to get the match. Best of luck.

Unfortunately, I cannot. Everything is pro rata.

I went ahead with this idea and will monitor to determine if/when I should do the mega backdoor.

<<- I am not currently maxing out tax-advantaged 401(k) savings. I *could* do this but I am more concerned about non-retirement savings at this time. >>

Who tell you that 401K is a retirement account? It is a tax-advantaged account. You can get the money out before 59.5 years old. Hence, it is not a retirement account. You should check out the following URL.